Spain was offered some badly needed breathing space by Berlin to cut its deficit yesterday but remained on the edge of a bailout after a series of grim figures showed how eurozone workers were suffering in the grip of austerity.
Unemployment in the 17 member nations hit a euro-era record of 17.4 million, or 11 per cent. Spain retained the highest level of joblessness, with 24.3 per cent, up from 24.1 per cent last month, with 51.5 per cent of under-25s unemployed. Manufacturing contracted at the fastest rate in the European Union.
Markets in Frankfurt and Paris suffered, down 3.42 per cent and 2.21 per cent, respectively, and the euro hit a 23-month low against the dollar on the back of the unemployment figures and slow economic activity.
The Markit manufacturing purchasing managers’ index showed eurozone activity sinking to its lowest level in three years.
“These data paint a dismal picture of a deepening recession throughout the region,” Jennifer McKeown, senior European economist at Capital Economics, said. “This clearly further reduces policymakers’ chances of stemming the debt crisis.”
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The ING Bank analyst Martin van Vliet added: “All in all, today’s grim unemployment figures provide a sober reminder that the eurozone economy is in desperate need of a more expansionary policy stance.”
The European Commission called this week for Spain to be given an extra year to reduce its deficit to the required 3 per cent and Berlin had been cool to any measures that dilute austerity drives. However, Johannes Blankenheim, a German Finance Ministry spokesman, relaxed the policy yesterday: “We support Spain in its efforts to implement the necessary measures. But we also recognise that because of negative economic developments it will be difficult for Spain to reach its goals,” he said. Asked if this meant that he supported giving Spain more time, he replied: “I think that is what I have been saying.”
Mario Monti, the Italian Prime Minister, invited Angela Merkel, President Hollande and Mariano Rajoy, the Spanish Prime Minister, to Rome on June 22 to seek a compromise position on a growth strategy ahead of an EU summit the following week.
The leaders failed to find agreement at a dinner last month, leaving the euro at the mercy of market jitters over Spain’s worsening problems and the re-run Greek election on June 17.
Alexis Tsipras, the leader of Greece’s left-wing Syriza party, which according to one poll is six points ahead of the pro-austerity New Democracy, pledged yesterday to cancel the €130 billion rescue programme, reverse unpopular wage and pension cuts, nationalise banks and freeze privatisations if he were to win the election.